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Albania’s c-bank holds key rate at 1%

Albania’s c-bank holds key rate at 1% Bank of Albania/All rights reserved.

TIRANA (Albania), December 18 (SeeNews) – Albania's central bank said on Wednesday it has decided to keep its key policy rate unchanged at a record low 1.0%.

The interest rate corridor in the interbank money market will also be kept unchanged, set at 0.10% for the overnight deposit rate and at 1.90% for the overnight lending rate, the Bank of Albania said in a statement following a meeting of its rate-setting supervisory council.

The central bank last changed its monetary policy rate in June 2018, lowering it by 25 basis points to 1.0% amid strong appreciation of the lek currency which increased downside pressure on inflation.

The available information does not indicate a need to change the monetary policy stance, central bank governor Gent Sejko said in the statement.

“The supervisory council deems that to achieve price stability and support economic growth, we need to implement an accommodative monetary policy stance,” Sejko added.

“Furthermore, the supervisory council notes that a comprehensive assessment of post-earthquake economic consequences requires some more time. This assessment would pave the way for revising our medium-term forecasts and judgment on the future path of monetary policy.”

A 6.3 magnitude earthquake on November 26, the worst to hit Albania in decades, left 51 people dead and around 3000 injured.

Fourth quarter inflation rates remained largely unchanged compared to the previous quarter, Sejko noted. Average inflation was 1.4% in the third quarter.

According to Sejko, available data suggests that in the third quarter economic growth was similar to the previous quarter.

“Economic activity expanded driven by growth of consumption and private investments and, in particular, expansion of revenues from tourism,” he said.

According to Albania's office of statistics, gross domestic product (GDP) grew by 2.31% year-on-year in the second quarter of 2019.

“The performance of the economy was reflected in labour market data for the third quarter, which show that employment gained 3.3% in annual terms, as unemployment fell to 11.4% and average wages increased by 3.5% annually,” Sejko said, adding that the favourable financial environment and improved credit demand and supply created conditions for a further improvement of lending to the economy.

According to the central bank governor, the consolidation of the banking sector and the reduction of credit risk, as illustrated by the fall in the non-performing loan ratio to 9.5% in November, dictate a more active approach by banks toward lending.

According to Sejko, the supervisory council deems that - even taking into account the November 26th earthquake consequences – the bank’s projections remain valid in the medium term. 

“Nevertheless, these consequences - for their major part - are adverse and may impose a time lag for the return of the economy to equilibrium and of the inflation to target,” Sejko explained.

The consequences of the earthquake are expected to be negative, albeit concentrated on a limited geographical area and uneven across the sectors of the economy, Sejko said, adding that that the rapid addressing of damages would alleviate their impact on the economy

Also under extreme scenarios, the central bank’s projections suggest that the economic growth rate is expected to remain in positive territory next year and onward and the monetary and financial stability of Albania remains unaffected, Sejko noted.

Bank of Albania expects inflation to converge to its target in the second half of 2021.

“This projection was based on the expected improvement of the pace of economic growth, which would in turn increase wages and production costs, as well as provide increased exchange rate stability, something that would facilitate the transmission of foreign inflationary pressures.”